Special Feature

The new look of retirement

This special feature from the Mid-November 2013 issue of Investment Executive covers building portfolios for longer life expectancies, protecting clients who marry late in life, using ETFs in a retirement portfolio, and much more.

As life expectancies lengthen, the need for long-term care insurance increases. But the clients who need it most may have difficulty paying the premiums — that is, if they can meet the relatively high eligibility criteria for coverage

By Megan Harman | Mid-November 2013

As Canadians live longer and face the need for long-term care (LTC), you should educate your clients about the potentially hefty costs of that care.

"Most people don't realize there is that cost; we're so used to having universal health care," says Susan Eng, vice president of advocacy with Toronto-based  CARP (formerly known as the Canadian Association of Retired Persons). "There are a whole bundle of costs that people haven't thought about."

The cost of care ranges considerably, depending on whether the care is home-based or offered in a facility, the level of care that's needed, the type of facility and the level of privacy, among other factors. In some cases, LTC can cost upward of $8,000 per month.

Although all provinces cover at least a portion of the cost of LTC, these subsidies are not sustainable, given the aging population. "Government isn't going to be there," says Karen Henderson, an LTC insurance specialist and CEO of Long Term Care Planning Network in Toronto. "What I tell clients is: ‘Whatever you get from the government is icing on the cake. Don't count on it'."

LTC insurance is one tool to help your clients with the potentially steep costs associated with LTC. An LTC insurance policy can offset some or all of the cost of LTC through monthly benefits of as much as $8,500. The benefit typically is triggered by a chronic illness, disability, cognitive impairment or another age-related condition that prevents the client from managing certain activities of daily living without assistance.

Despite the benefits, LTC insurance has failed to take off in Canada. At the end of 2012, 343,100 Canadians were covered under LTC insurance, according to Canadian Life and Health Insurance Association Inc. In comparison, more than 1.6 million Canadians were covered by critical illness (CI) insurance policies.

Strict underwriting guidelines are partially responsible. Clients usually are eligible to apply for LTC policies up to age 80, but older clients often have a hard time getting approved. The underwriting process typically involves an interview by telephone or in person to assess the client's lifestyle and cognitive status. In some cases, a physical examination also is required.

"I get so many [application] declines on LTC," says Mimi Lee, an independent insurance advisor and owner of TruFinancial Consultants in Markham, Ont. Even healthy clients are declined, she adds, with no reason provided. "It's very frustrating."

Although younger clients have an easier time getting LTC coverage, few people under the age of 50 are interested in this type of insurance, Lee says: "The only people you can actually talk to are people over 50. And, at that age, it's very hard to get coverage."

Not all of your clients who may be eligible for LTC coverage can afford it. The premiums can be expensive, particularly for older clients. A 60-year-old male can expect to pay $250-$300 per month for a policy that would pay $4,000 per month in benefits for life, with a 30-day waiting period. Those premiums could rise over time.

"Right now, the people who are likely to want to buy [LTC insurance] can't afford it," Eng says. "It's just not priced in a customer-friendly way."

To decide whether the premiums make sense, Lee calculates the break-even point — the number of years a client would need to receive benefits to recoup the premiums (assuming the policy had been fully paid over a 20-year period).

Most clients would break even after receiving benefits for 2.5 to three years, which Lee considers reasonable. If the break-even point is five years or more, Lee considers the premiums too high.

You can reduce the cost of premiums by adjusting the policy features. For example, a lower monthly benefit, a shorter coverage period or a longer waiting period would reduce the premiums. The lower coverage may not cover all of the client's LTC-related costs, but, Henderson says, it can help considerably. "Like any other insurance product," she says, "[LTC] can be tailored to the needs of the client and to the budget of the client."

Another way your clients can lower their premiums is by combining their LTC coverage with other types of insurance. Under some CI policies, "loss of independence" is listed as one of the conditions that will prompt a payout of benefits. Some CI policies also have an option to be converted to LTC insurance.

A product recently released by Lévis, Que.-based Desjardins Financial Security Life Assurance Co. combines LTC coverage with permanent life insurance. The product, called Life LTC Advance, allows policyholders to receive a monthly advance of 1% of their life insurance benefit — up to $2,500 a month, tax-free and interest-free — if they require LTC. Because Life LTC Advance is underwritten as a life insurance policy, that product may be an easier way for your clients to qualify for LTC coverage.       IE